What is "Earnings Before Interest and Taxes (EBIT)" meaning?

Earnings Before Interest and Taxes (EBIT) represents a company’s ability to generate profit from its operations before the influence of financial and tax expenses. It’s often used to evaluate the core profitability of a business, offering insights into its operational efficiency and potential for generating profits without the influence of external factors such as debt and taxes.

Example

"The company reported an EBIT of $10 million for the quarter, indicating strong operational performance despite higher interest costs."

How is "EBIT" used in business?

EBIT is widely used by investors and analysts to assess a company’s operational performance, as it isolates earnings from core business activities. It helps evaluate how well a company can generate profit from its operations before the costs of financing and taxes are factored in.

Pro Tip

When comparing companies in the same industry, EBIT provides a cleaner comparison by excluding the effects of different capital structures and tax rates. Be mindful of non-recurring expenses that could distort EBIT figures.

Related Terms

Operating Income, Profit Margin, Earnings Before Taxes (EBT), Financial Ratios